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Piper Jaffray Internet Research
Safa Rashtchy, Managing Director, Senior Analyst
Aaron Kessler, Senior Analyst
Paul Bieber, Research Analyst
Nat Schindler, Research Analyst
Judy Tzeng, Research Associate
Search As The New Medium
From Looking to Exploring
Kelsey Group
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San Jose, March 27, 2006
Kelsey Group
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DISCLOSURE STATEMENT – Safa Rashtchy
1. I or a household member have a financial interest in the securities of the following companies: none
2. I or a household member is an officer, director, or advisory board member of the following companies: none
3. I have received compensation within the past 12 months from the following companies : none
4. Piper Jaffray or its affiliates beneficially own 1% or more of any class of common equities of the following
companies: none
5. The following companies have been investment banking clients of Piper Jaffray during the past 12 months:
BIDU, CTRP, FMCN, GOOG, HRAY, JOBS, MCHX, SOLD
6. Piper Jaffray expects to have the following companies as investment banking clients within the next three
months: FMCN
7. Other material conflicts of interest for Safa Rashtchy or Piper Jaffray regarding companies in my universe for
which I am aware include: BIDU, FMCN, HRAY, MCHX: underwriting
8. Piper Jaffray received non-investment banking securities-related compensation from the following companies
during the past 12 months: DRIV, JOBS, LTON, SNDA
9. Piper Jaffray makes a market in the securities of the following companies, and will buy and sell the securities of
these companies on a principal basis: AMZN, BIDU, CNET, CTRP, DRIV, EBAY, FMCN, GOOG, HRAY, JOBS,
SOLD, INSP, IACI, LTON, MCHX, NTES, NFLX, SNDA, SINA, SOHU, TOMO, UNTD, WSSI, YHOO
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DISCLOSURE STATEMENT – Aaron Kessler
1. I or a household member have a financial interest in the securities of the following companies: none
2. I or a household member is an officer, director, or advisory board member of the following companies: none
3. I have received compensation within the past 12 months from the following companies : none
4. Piper Jaffray or its affiliates beneficially own 1% or more of any class of common equities of the following
companies: none
5. The following companies have been investment banking clients of Piper Jaffray during the past 12 months:
FTD, OSTK, WSPI
6. Piper Jaffray expects to have the following companies as investment banking clients within the next three
months: WSPI
7. Other material conflicts of interest for Aaron Kessler or Piper Jaffray regarding companies in my universe for
which I am aware include: FTD, WSPI: underwriting
8. Piper Jaffray received non-investment banking securities-related compensation from the following companies
during the past 12 months: none
9. Piper Jaffray makes a market in the securities of the following companies, and will buy and sell the securities of
these companies on a principal basis: AKAM, AQNT, DTAS, EXPE, FTD, GSIC, GYI, HOMS, JUPM, LOOK,
NILE, OSTK, PCLN, RNWK, TFSM, VCLK, WSPI
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The World of Advertising
is Changing –
The Most Profound Change Since the
Introduction of TV
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The Changing World of Advertising
Consumers now:
- Consume what they like – content from Network TV,
Cable, Internet, podcasting, etc.
- Consume it when they want it – not at prime time, Tivo it
- Consume it where they want it – at work, at friend's house,
in the airplane
- Consume it from the device of their choice – TV, iPod,
laptop
But Still…
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The Changing World of Advertising
Half of my advertising is wasted-- I
just don't know which half.
John Wanamaker – 1922
More than $200 billion is wasted ….
It is now possible to begin identifying the other
half and make it work
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What I’ll Cover Today: The New Role of Search
An Exploration Medium that Will Become the Center of the New Advertising Models
- The online Advertising and Search – A Big force in today’s ad market
- The changing use of search by consumers
- The changing use of search by advertisers
- The increasing role of Local search
- The role of search in a highly fragmented media mix
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Global Online Advertising – A Big Industry Now
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$ 9.6 Billion industry worldwide – in 2001
$19.5 Billion industry worldwide – in 2005
Search
$9.5 B
Non-search $10 B
$55.1
Billion industry worldwide – by 2010
Source: Piper Jaffray. & Co.
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Our Search and Advertising Estimates: 27% 5-Yr CAGR
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$60,000
Global Branded Advertising ($M)
Global Paid Search Revenue ($M)
$50,000
$40,000
$30,000
$20,000
$10,000
$0
2001
2002
2003
Global Online Advertising Market
Global Paid Search Revenue ($M)
Global Branded Advertising ($M)
Global Online Advertising Revenue ($M)
2004
2003
$2,717
$6,471
$9,189
2005E 2006E 2007E 2008E 2009E 2010E
2004
$5,182
$8,024
$13,206
2005E
$9,677
$9,791
$19,467
2006E
$13,642
$11,683
$25,324
2007E
$17,905
$13,840
$31,745
2008E
$22,610
$16,189
$38,799
2009E
$27,752
$18,714
$46,466
2010E
$33,651
$21,435
$55,086
Online search is a rapidly growing and profitable segment of the Internet
and is expected to be a $7 billion industry worldwide by 2007, representing
a CAGR of more than 30%. The Golden Search Report, 2003, Piper Jaffray
Source: Piper Jaffray. & Co.
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The Growth Path of Search- The Users
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Consumers are not looking at search
as a balance between algorithmic and
commercial listings – the boundaries
have blurred into a big platform
Google Enters
Search for Websites
Becomes useful
Overture Enters
Search for products
Become useful
Algorithmic
search
Googling is a Verb
Users rely on search
For all types of inquires
Commercial
Search
Search as a New Media
Users Explore Ideas
Through Search
“Search”
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Search is Now the Trusted Medium
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- Search provides access to a very wide range of questions – it is comprehensive, not
specific, without focus on a single product category
- Search is deep – you can learn nearly ALL you want about a given topic
- Google has become a trusted brand, making search a trusted medium – advertising is
used but doesn’t seem intrusive
- Users expect to “explore” using search, not just find a single answer
Top 10 Searches from Leading Search Engine
Martin Luther King, Jr
st. patrick's day
St. Patrick's Day
American Idol
Paris Hilton
Rosa Parks
channing tatum
Poker
Internal Revenue Service
Slipknot
Harriet Tubman
v for vendetta
March Madness
France Protest
Music Downloads
Black History
ncaa
Pam Anderson
Shakira
50 Cent
Jackie Robinson
tara rose mcavoy
Britney Spears
Debra LaFave
Restaurants
George Washington
spencer tunick
Neopets
Chris Brown
Emma Watson
Maya Angelou
natalie portman
Paris Hilton
Lost
Internet
Coretta Scott King
oblivion
Dragonball
NBA
Gwen Stefani
Langston Hughes
terrell owens
Taxes
America's Next Top Model
Web Messenger
Malcolm X
ides of march
NFL
WWE
Fat Man Walking
Source: Google, AOL, Lycos, MSN, Yahoo
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The Virtuous Cycle Worked- And is Continuing to Work
1
5
Searchers
find
relevant
commercial
results
More
advertisers
join
2
More
advertisers
join
Searchers
use more
detailed
search (word
count goes
up)
Searchers
find more
results- learn
to use search
more often
3
4
Source: Piper Jaffray & Co.
First Published in 2003
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The Growth Path of Search- The Advertisers
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The Original 15k
The Pioneer,
Small Business
Discovery of Search -1
Amazon, eBay,
Expedia
Discovery of Search- 2:
General Motors,
Proctor and Gamble
Discovery of Search - 3:
Local Business
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Search and Branding Converge
GM’s Latest Advertising Campaign:
“Don't take our word for it. Google Pontiac and discover
for yourself”
If you don’t capture consumers looking for you,
Your competitors will.
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Search Market Share: Google Still Dominates
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MSNMicrosoft
9%
Worldwide Search Market Share
Ask Jeeves
Other
AOL
4%
2%
4%
Yahoo!
21%
Google
60%
Source: comScore Networks
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Search Market Share: Google is Gaining, Despite Intensified Competition
Worldwide Search Market Share
55.0%
45.0%
Google
35.0%
Yahoo!
M SN-M icrosoft
25.0%
15.0%
Jan-06
Nov-05
Sep-05
Jul-05
May-05
Mar-05
Jan-05
Nov-04
Sep-04
Jul-04
May-04
5.0%
Mar-04
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Jan-04
Kelsey Group
Source: comScore Networks
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Local Search: The Next Major Lever
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- Local search is already happening; advertisers are gradually coming
- The big move in local search will come with increased presence of franchise operations
- Google Maps and Yahoo Local were major forces, pushing local search further
- The current count of about 500K online advertisers could reach 2-4 million with local
search over the next five years
- The final phase will be addition of real-time inventory (RFID)
- Ultimately, local search could consume as much as 50% of all purchases online
Yellow Pages
listing
Map & Context
Based listings
Paid listings
Inventory-based
Listings
Growth Path of Local Search
Source: Piper Jaffray. & Co.
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How Local Search Could Replace e-Commerce
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To Review:
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1. Online Advertising and Search will likely be a $55B industry in just a few years
2. Consumers are using search more, trusting it as an exploration medium
3. Advertisers are realizing the importance of search beyond direct marketing
4. Local search is already happening and promises to further enhance the position of
search with consumers and advertisers
Meanwhile…
Source: Piper Jaffray. & Co.
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Advertising Media is Loosing its Effectiveness
1. Media is Fragmented – users are increasingly defiant against ads
2. Brand building is very difficult; Marketers are resorting to promotions
3. Advertisers are challenged on how to reach the young audiences and how to spent only
fragments of time on each media
4. The traditional advertising and promotional model are not working!
Print/Radio:
Call to action
TV:
Branding
Direct Marketing/
In Store Promotions
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Opportunities for Search
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Search Will Become the Central Element in a Highly
Fragmented Media Mix
 The Trusting Role of Search – could make search the arbiter
 The Efficiency of Search – attracts ad-defiant users
 Cross Media Application of Search – works in tandem with the offline message
TV:
Branding
Print/Radio:
Call to action
Search
Purchase!
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Conclusion
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 The Role of search is changing: From a DM model to a full media platform
 We expect the best applications of search to involve cross-media campaigns
 We expect local search to become real and to change the advertiser landscape
 We believe search will not be the biggest channel or the only way to advertise, but it will
become a central piece of a new marketing model
 We expect advertisers to put more money into search, not less
Thank You!
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Q&A
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Analyst Certification—Aaron Kessler, Safa Rashtchy
The views expressed in this report accurately reflect my personal views about the subject Company and the subject security. In addition, no
part of my compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this report.
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